Section 80E Deduction

Section 80E Deduction is allowed on interest paid for an educational loan taken from a bank or financial institution for pursuing higher education after high school. The total amount of interest paid on an education loan taken for self, spouse or children can be claimed as a deduction. There is no maximum limit on the amount of deduction and the entire amount of interest paid can be taken as a deduction.

Deduction Eligible under Section 80E

Taxpayer Type

Only individual taxpayers can avail deduction under Section 80E for educational loan taken for self, spouse or children. HUFs cannot claim deduction under Section 80E.

Purpose of Loan

An educational loan must have been availed by the taxpayer from a bank or financial institution for pursuing higher education. ‘Higher education’ means any course of study pursued after passing the Senior Secondary Examination or its equivalent from any school, board or university recognised by the Central Government or State Government or local authority or by any other authority authorised by the Central Government or State Government or local authority to do so.

Period of Deduction

Section 80E deduction can be claimed for a maximum period of 8 years or until the interest on the education loan is paid in full, whichever is earlier.

Section 80E Deduction for Foreign Educational Loan

Section 80E deduction can be Tax benefit can be claimed on a educational loan taken pursuing a course in a foreign college or university. Most educational loans not only cover tuition or college fees but also other incidental expenses for pursuing such studies like hostel charges, transport charges, etc.

Section 80E - Income Tax - Bare Act

After section 80DD of the Income-tax Act, the following section shall be inserted with effect from the 1st day of April, 1995, namely:

80E. Deduction in respect of repayment of loan taken for higher education.

In computing the total income of an assessee, being an individual, there shall be deducted, in accordance with and subject to the provisions of this section, any amount paid by him in the previous year, out of his income chargeable to tax, by way of repayment of loan, taken by him from any financial institution or any approved charitable institution for the purpose of pursuing his higher education, or interest on such loan: Provided that the amount which may be so deducted shall not exceed twenty-five thousand 'rupees.

The deduction specified in sub-section (1) shall be allowed in computing the total income in respect of the initial assessment year and seven assessment years immediately succeeding the initial assessment year or until the loan referred to in sub-section (1) together with interest thereon is paid by the assessee in full, whichever is earlier.

For the purposes of this section

"approved charitable institution" means an institution specified in, or, as the case may be, an institution established for charitable purposes and notified by the Central Government under, clause (23C) of section 10 or an institution referred to in clause (a) of sub-section (2) of section 80G

"financial institution" means a banking company to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); or any other financial institution which the Central Government may, by notification in the Official Gazette, specify in this behalf

"higher education" means full-time studies for any graduate or post-graduate course in engineering, medicine, management or for post-graduate course in applied sciences or pure sciences including mathematics and statistics

"initial assessment year" means the assessment year relevant to the previous year, in which the assessee starts repaying the loan or interest thereon.

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